Skip to page content
Employee Benefits Security Administration

EBSA Federal Register Notice

Proposed Exemption; The DeRose Dental Offices, Inc., S.C. Profit Sharing Plan (the Plan) [03/22/2007]

[PDF Version]

Volume 72, Number 55, Page 13517-13519


[[Page 13517]]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11408, et al.]

 
Proposed Exemption; The DeRose Dental Offices, Inc., S.C. Profit 
Sharing Plan (the Plan)

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemption.

-----------------------------------------------------------------------

SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of a proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemption, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing.

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5700, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ----, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 

scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemption will be provided to all interested 
persons in the manner agreed upon by the applicant and the Department 
within 15 days of the date of publication in the Federal Register. Such 
notice shall include a copy of the notice of proposed exemption as 
published in the Federal Register and shall inform interested persons 
of their right to comment and to request a hearing (where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemption were requested in an 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemption which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

The DeRose Dental Offices, Inc., S.C. Profit Sharing Plan (the Plan), 
Located in Racine, Wisconsin

[Application No. D-11408]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 
32847, August 10, 1990). If the exemption is granted, the restrictions 
of section 406(a), 406(b)(1) and (b)(2) of the Act, and the sanctions 
resulting from the application of section 4975(a) and (b) of the Code, 
by reason of section 4975(c)(1)(A) through (E) of the Code, shall not 
apply to the December 29, 2006 sale by the Plan of 2,174 shares of 
stock (the Stock) in Wisconsin Bancshares, Inc. (the Company) each to 
Francesca DeRose (Francesca) and Nicolet DeRose (Nicolet), parties in 
interest with respect to the Plan, provided the following conditions 
are satisfied:
    (a) The sales of the Stock were one-time transactions for cash;
    (b) The Plan paid no commissions or other fees in connection with 
the sales;
    (c) The terms of the transactions were at least as favorable to the 
Plan as those the Plan could obtain in similar transactions with an 
unrelated party; and
    (d) the sales price of the Stock was determined by a qualified, 
independent appraiser.

DATES: Effective Date: The proposed exemption, if granted, will be 
effective as of December 29, 2006.

Summary of Facts and Representations

    1. The Plan is an individual account plan established by DeRose 
Dental Offices, Inc., S.C. (the Employer), a professional dental 
corporation located in Racine, Wisconsin. As of December 31, 2005 (the 
Last Valuation Date), the Plan had 10 participants and beneficiaries, 
and had total assets of $1,951,401. Francesca and Nicolet, the only 
dentists employed by the Employer, are participants in the Plan. 
Francesca, along with Ronald S. Rizzo, is also the co-trustee of the 
Plan. As of the Last Valuation Date, Francesca's account value was 
$747,061.71, and Nicolet's account value was $986,336.53. These account 
values constitute approximately 88.83% of the total assets of the Plan. 
The applicants represent that since the Last Valuation Date, the values 
of the participants' respective accounts have not significantly 
changed.
    2. Among other assets, the Plan held shares (i.e., the Stock) of 
the Company, a closely-held bank holding company registered under the 
Bank Holding Company Act of 1956, as amended, and a financial holding 
company under the Gramm-Leach-Bliley Act of 1999. The Company is the 
100% owner of Banks of Wisconsin (the Bank), a full service community 
bank with four locations in Wisconsin. As of December 8, 2006, 535,594 
shares of Stock were issued and outstanding.
    3. The applicants represent that the Plan initially acquired shares 
of common stock of the Bank in the secondary private stock offering by 
the Bank on July 29, 2003 at a price of $23 per share, or an aggregate 
purchase price of $100,004. On December 31, 2004, the Company was 
formed as a holding company for all of the shares of the common stock 
of the Bank. As of January 1, 2005, all of the shares of the Bank were 
converted into shares of the Stock. The price per share in the 
secondary offering was determined by the Board of Directors (the Board) 
of the Bank. The shares were offered to

[[Page 13518]]

existing shareholders of the Bank and to the Plan. The offer was not 
underwritten by any third party. The applicants represent that the 
Board determined the secondary offering price by calculating a 
hypothetical fair return for a start up bank after three years of 
operations and experience. All of the shares of the Bank were sold in 
the secondary offering, which raised approximately $2.8 million for the 
Bank. The Bank's initial private stock offering occurred on June 26, 
2000 at a price of $20 per share. The Plan has not acquired any 
additional shares of Stock since the acquisition on July 29, 2003. The 
applicants represent that the Bank is, and at the time of the 
acquisition of the Stock by the Plan was, an entity unrelated to the 
Plan, and not a party in interest with respect to the Plan within the 
meaning of section 3(14) of the Act. The Company has at all times been 
an entity unrelated to the Plan.
    4. Francesca also holds 3,950 shares of the Stock individually. In 
addition, David Barnes, her husband and the Chairman of the Board of 
the Bank, holds 37,777 shares of Stock individually and 2,050 shares as 
trustee of one or more custodial accounts established under the Uniform 
Transfer to Minors Act. Together, Mr. Barnes and Francesca hold 
approximately 9.02% of the issued and outstanding shares of Stock. 
Nicolet in her individual capacity holds 375 shares of Stock. Mr. 
Rizzo, the co-trustee of the Plan, holds 15,616 shares of the Stock 
individually, which represents approximately 2.92% of the issued and 
outstanding Stock. The Stock held by the Plan represented 0.81% of the 
issued and outstanding Stock. During the period of its ownership of the 
Stock, the Plan earned no dividends or other income and incurred no 
expenses with respect to the Stock. Except for Mr. Barnes, neither Mr. 
Rizzo, nor any family member (including the Plan participants) is an 
officer, director or controlling shareholder of the Bank or the 
Company.
    5. The applicants have requested a retroactive prohibited 
transaction exemption for the purchase of 2,174 shares of the Stock by 
Francesca, and the purchase of 2,174 shares of the Stock by Nicolet. 
Both transactions occurred on December 29, 2006. The applicants 
represent that due to business and income tax considerations, the 
Company and Bank are both seeking to make a Subchapter S election, to 
be effective as of January 1, 2007. Although a tax-exempt qualified 
trust forming part of a stock bonus, pension or profit-sharing plan, 
such as the Plan and its related trust, can be an S corporation 
eligible shareholder, such exempt trust is required to pay the 
unrelated business income tax (UBIT) on all income attributable to 
ownership of stock of an S corporation, using the income tax rates. 
UBIT is due whether or not the S corporation actually distributes the 
income to the trust. In addition, any gain on the sale of the S 
corporation stock by a trust is generally subject to UBIT. Because the 
Plan would incur unfavorable tax consequences as a result of an S 
corporation election and the continued holding of the Stock, Nicolet 
and Francesca desired to purchase the Stock from the Plan. The decision 
on behalf of the Plan to sell the Stock was made solely by Mr. Rizzo in 
his capacity as co-trustee.
    6. The Stock was independently appraised by an independent 
appraiser, Mercer Capital (Mercer). Mercer is an independent financial 
advisor experienced in the financial analysis and valuation of 
financial institutions. The Company retained Mercer, in connection with 
the S corporation election and related merger transaction, to assist 
the Board in determining a fair price for the Stock. Mercer delivered 
an appraisal to the Board at the Board's meeting on October 17, 2006, 
using the Company's September 30, 2006 financial data, whereby it 
determined the fair market value of the Stock to be $44 per share. On 
November 1, 2006, Mercer issued an opinion to the Board that the cash 
consideration to be received by the Bank's shareholders was fair to the 
shareholders. In arriving at its opinion and appraisal, Mercer reviewed 
and analyzed the Company's audited financial statements, quarterly 
reports, the Company's financial forecasts, the historical trading 
prices and activity for the Stock, the nature and financial terms of 
certain other merger and acquisition transactions involving banks, 
financial studies, analyses and investigations and relevant financial, 
economic and market criteria. In addition, Mercer met with the 
management of the Company to discuss past and current operations, 
financial condition and prospects, as well as the result of regulatory 
examinations.
    7. On the date of the sale of the Stock to Francesca and Nicolet by 
the Plan, Mr. Rizzo, in his capacity as co-trustee for the Plan, 
contacted Mr. Andy Gibbs at Mercer in order to obtain an updated 
appraisal of the Stock or a confirmation that the value of Stock since 
the date of the appraisal had not changed. Mr. Gibbs advised Mr. Rizzo 
that Mercer was aware of no circumstances that would change its 
appraisal of the Stock as of September 30, 2006, and that the appraisal 
report and appraised value of $44 per share of Stock remained current 
as of the date of sale.
    8. The applicants represent that there is no active trading market 
for the Stock, and no market is expected to develop for the Stock upon 
the consummation of the merger and the S corporation election. The sale 
of the Stock to Francesca and Nicolet presented an opportunity to 
provide better liquidity and diversification of investments in the Plan 
at a fair price. The applicants represent that the Plan benefited from 
significant appreciation in the value of the Stock since purchasing the 
Stock in the secondary offering. As demonstrated by the appraisal by 
Mercer, the value of the Stock as of September 30, 2006 ($44) 
significantly exceeds the purchase price paid by the Plan for the Stock 
($23 per share on July 23, 2003) and the value of the Stock on the Last 
Valuation Date, which was determined to be $25 per share based on 
recent private sale transactions.
    9. In summary, the applicants represent that the subject 
transactions satisfy the criteria contained in section 408(a) of the 
Act because: (a) The terms of the transactions were at least as 
favorable to the Plan as those the Plan could have obtained in similar 
transactions with an unrelated party; (b) the sales of the Stock were 
one-time transactions for cash, and the Plan paid no commissions or 
other fees in connection with the sales; (c) the sales price of the 
Stock was determined by a qualified, independent appraiser who 
confirmed the fair market value as of the date of the sales; (d) the 
Plan benefited from significant appreciation in the Stock since the 
time of its acquisition in July, 2003; and (e) the sales of the Stock 
provide better liquidity and diversification of investments in the 
Plan.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 693-8546. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his

[[Page 13519]]

duties respecting the plan solely in the interest of the participants 
and beneficiaries of the plan and in a prudent fashion in accordance 
with section 404(a)(1)(b) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 16th day of March, 2007.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. E7-5209 Filed 3-21-07; 8:45 am]

BILLING CODE 4510-29-P